TAIPEI As he counts down his final months at the helm of Taiwan’s central bank, Governor Perng Fai-nan has made it his mission to get Taiwan off the U.S. government’s list of possible currency manipulators by turning on its head a decades-old policy of keeping the currency weak.

The change is bearing some fruit, but Perng is in a race against time to completely remove Taiwan from the U.S. government’s list of countries being monitored for currency manipulation before he leaves office early next year.

While the U.S. Treasury has recognized Taiwan’s efforts to reduce currency intervention to suppress the strength of the Taiwan dollar TWD=, it wants to make sure the change is longer lasting before taking the island off of its watchlist. Others on the U.S. watchlist include China and Germany.

Under U.S. rules, economies with a hefty trade surplus with the United States, a current account surplus exceeding 3 percent of their GDP and which use heavy intervention would be labeled currency manipulators and could be subject to punitive measures.

The criteria, introduced in 2016, gave Taiwan’s central bank a roadmap to follow. Its trade surplus with the United States was below the U.S.’ threshold, while its current account surplus as a small, trade-reliant economy, was well above the threshold at 13 percent of GDP.

So the central bank’s best hope to get off the watchlist was to ease up on intervention, central bank officials said.

Now, the United States sees Taiwan heading in the right direction, the head of the central bank’s foreign exchange department suggested.

“This time Taiwan only fulfilled one criteria,” said Harry Yen, referring to the U.S. Treasury’s latest twice-yearly currency manipulator report in April.

DRAMATIC TURN

The change in currency policy marked a dramatic turn for a trading island that punches way above its economic weight.

For nearly two decades, Perng’s management of the exchange rate had been seen at home as a pillar of support for exporters, which fuel more than half the economy and are vital to many global technology supply chains.

Over the years, Perng was a regular in the central bank’s trading room, barking orders to directly manage the currency, central bank officials said. A fish tank was installed in the trading room, filled with cichlids that are known for being nimble and fast – something the central bank dealers wanted to emulate in currency markets.

“If changes in the market are very big, Perng will take command when he is in the trading room,” said a central bank official, who declined to be identified because of the sensitivity of the issue.

Neither Perng nor his office wanted to comment for this story.

Under the central bank’s tight management, the Taiwan dollar fell 14 percent against the U.S. dollar between early 2011 and 2016.

But since Perng changed policy, the Taiwan dollar has risen sharply. It is up 7 percent against the dollar this year alone, sitting alongside the Korean won as Asia’s strongest major currency.

The shift was rewarded by the U.S. Treasury, which said in its October 2016 report that the Taiwan central bank had cut back on its “intervention at the end of the trading day, which many market participants had viewed as a preference for currency depreciation.”

By April 2017, Treasury officials said Taiwan’s intervention had fallen below red-line levels, so it no longer met the intervention criterion, but they kept it on their watchlist because they were not convinced the change was long lasting.

Taiwan can only be removed from the watchlist when it meets only one criterion for two consecutive Treasury reports.

The U.S. Treasury said Taiwan needs a “durable, not one-off” improvement to get off the watch list. Another potential delay could be a disagreement over how income on the island’s $438 billion in currency reserves is calculated, Taiwan sources said. The Treasury sees the income as evidence of intervention.

UNKNOWN FACTOR

The change in currency policy has not come without its downside.

The world’s largest contract chipmaker Taiwan Semiconductor Manufacturing Co (2330.TW) said last month that its first-quarter revenue fell short by T$6 billion ($200 million) due to the local dollar’s strength.

It said it expected the Taiwan dollar to keep rising, which in turn could hit its revenue because most of it is denominated in U.S. dollars.

There is also an unknown factor Taiwan may have to contend with in trying to avoid the currency manipulator label – an unpredictable U.S. president.

Although Donald Trump has toned down his rhetoric since entering office in January, central bank officials fear Trump might push for a different way to declare big exporters a currency manipulator.

“For example, if the U.S. economy doesn’t do well and America’s trade deficit doesn’t improve, the rumblings will get louder and to resolve domestic issues Trump could ‘change the status quo’ and Taiwan could stay on the monitoring list,” another central bank official said.